Why the Markets Misread Bernanke

6/26/2013 9:35AM

The Federal Reserve chairman's news conference a week ago was widely seen as a signal that the Fed is preparing to wean the economy off easy money. Not so, Capital columnist David Wessel argues. Photo: AP.

This transcript has been automatically generated and may not be 100% accurate.

... the ... stock and bond markets have been rocked after burning keys press conference last week suggested ... well something he suggested ... that ... the Fed would pull back on bond buying lots ... our markets putting words in his mouth that he didn't really say David Wessel think so David good morning ... morning ... so ... live Markets mis read ... Denver Nanking ... well I think Denver Nanking the lot of words into the system last week at his press conference on Wednesday ... and it was in that the market for words into his mouth is just a listen to one set of words ... decided he was hawkish decided that ... time the band was going to start pulling back on its bond buying in might even raise interest rates sooner than had been expected ... and it ignored the parts where the Fed chairman ... was pretty down mission said yes ... we are going to begin to wind down of bond buying but were very dependent on what happened to the economy and by the way we're not raising short-term interest rates for a long long time ... when you make ... we just that Paul beanie on sat in his argument is that ... the market is a misreading the said section diverse that the Fed is misreading ... the market when you make of that ... I stuck in a marriage counselor ... so look ... I think that ... all three are free to understand why the market does what it does ... in this case the market moved a lot ... on on a message from Ben Rene Kyi that I think the market misunderstood ... with one ... point two ... maybe the Fed should of been so surprise that the market did this after all ... rates have been extraordinarily well for a long time ... we know love there's a bit of froth in the markets ... in my column I point out that things were so giddy The Rwanda of all places was borrowing tenure money for six point eight seven five percent ... mean that studies to be kind of crazy it's the only grade a corporate ... borrowers and be able to borrow a ... so I'm ... the market may have been mispriced may have been ... tied to factored into much of all the troubles that we've seen ... and it was to prevent he became the excuse to move things too ... I'm ... approaching something closer to normal done so ... that the Fed was definitely surprised by the market ... so that suggests that though the Fed hadn't done all his homework ... and understanding where the market wants is the Fed it's really interesting you mention one day is just the latest it strikes me is the latest sign that ... we are seeing a lot of froth in the market Richard Fisher said look of a thirty year ... bond rally that can continue is the Fed ... almost in a box at this point because ... you have ... a market in the marketplace effectively making bets ... all and that ... what people call in you mention QE Infinity that they can never actually step back ... well um ... I don't think so I mean first of all I know there is some financial fraud to say there's a lot of things is overstating the evidence ... the prom is we're very sensitive to and for good reason as we saw that old drop can lead to a lot of froth and could lead to catastrophe ... secondly people been saying the Fed is in a box inside came to Washington in nineteen eighty seven ... so here's the deal ... the Fed has done extraordinary things bought is buying eighty five billion dollars ... of bonds a month it says is gonna wind that down there's no reason to doubt that the Fed is serious about winding it down ... or they'll be able to wine at home ... and insisted to that provided the economy gets better I think the interesting dynamic is if rates have gone up so much to mean the thirty year mortgages that this week was something like four point six percent to get a thirty year mortgage fixed rate ... if rates are going up so much that might actually serve as a break down the economy and that will lead the Fed to rethink its plans but was in the box they have a lot of flexibility ... they do have to worry about two different things one is financial stability ... and one is slow growth and low inflation and ... balancing those is tough ... but I don't think they're in a box it's a balance ok David Wessel thank you and everyone should check out your column this morning thank so